How Much Can You Increase Your IRA over
the Next 5 or 10 years – Just from
Contributions Alone?Shane Flait (2013)

As boomers approach
the end of their working years, many are
considering delaying retirement to
beef-up their IRAs and other savings.
But what’s a reasonable guess at how
much more they can accumulate? Here are
some estimates for your IRA…

You can contribute to
your IRA as long as you have working
income from which to contribute and you
haven’t started mandatory withdrawals at
age 70½. So, those aged 60 to 65 have 5
to 10 more years to contribute to their
IRA if they work until they’re 70.

As of 2013, annual
contribution limits to both traditional
and Roth IRAs are $5,500 plus an
additional $1,000 catch-up for those 50
or older. That allows boomers to
contribute $6,500 each year – based on
2013 limits – to their IRA.

But just how might
your IRA will grow if you contribute
just $6,000 of that $6,500 each year for
the next 5 or 10 years?

The table shows the
increase in an IRA for such
contributions for both 5 years and 10
years if the contributions compound at
annual return rates of 5, 7, and 10%.

IRA Increase for

Contributing $6000 per year

for 5 and 10 years

at 5, 7,and 10% growth rates

Compounding Rate

5 years

10 years

5%

$ 34,812

$ 79,242

7%

$ 36,918

$ 88,704

10%

$ 40,296

$ 105,186

Note that the table
shows only the increase due to these
contributions – not the increase of
money you already had in it!

So, according to the
table, at a 7% compounded annual return,
you’d accumulate almost $37,000 in 5
years or almost $90,000 in 10 years –
just from those contributions and their
earnings alone. Comparing the 5 to the
10 year accumulations, you can see that
delaying longer helps accumulations a
lot.

Also, at a 7%
compounding rate, whatever you had in
you IRA will double in 10 years; at a
10%, doubling takes only 7 years and at
a 5% rate, doubling takes place in about
14 years.

The beauty of these
tax-deferred plans, like the IRA, is
that they compound at their investment
return rate. Taxable accounts, on the
other hand, lose a portion their yearly
returns to taxation, so for equal
investment returns, they have a smaller
compounding rate than the tax-deferred
plans. And that significantly cuts into
potential growth for longer holding
times for taxable accounts.